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On Our Radar

Why Did Restaurant Brands International Inc. Shares Gain 30% in 2016?

Restaurant Brands International's(RBI) (NYSE: QSR)Burger King took back some of its mojo in 2016 with a steady stream of well-structured deals and an array of can't-look-away new food items. That led the chain to positive sales growth while its sister brand, Tim Hortons, matched or beat its success throughout the year.

What happened

RBI posted a gain in revenue from $1.61 billion in the first three quartersof 2015 to $1.63 billion during the same period in 2016. More importantly, the company increased its earnings per share (EPS) from $0.2 during that period in 2015 to $0.98 through three quarters of 2016.

Those strong numbers helped RBI's stock make some big gains. After opening the year at $36.51, shares closed 2016 at $47.66, a 30% increase according to data from S&P Global Market Intelligence.

So what

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While Tim Hortons has slowly grown its profile in the United States, the real star for RBI has been Burger King. Operating in a crowded, very difficult space, the chain has been able to keep or even grow its audience. That was done partly by cleverly using a promotion in which customers could buy a burger, chicken nuggets, fries, and a drink for $4, as well as by offering some discounts on nuggets. These promotions attracted the value-seeking crowd but were restrictive enough that they did not sap business from customers willing to spend more.

In addition, Burger King exposed itself to new customers with promotions like Mac 'n Cheetos and Cheetos Chicken Fries. These fairly offbeat offers brought media attention to the brand while also making it seem relevant at a time when its rivals were struggling to stand out.

Now what

Burger King faces an uphill battle to keep up its product innovation while also threading the needle of offering just enough -- but not too many -- discounts. Management has shown an ability to do that, but at some point the magic will run out.

RBI has perhaps a bigger opportunity with Tim Hortons. The chain remains fairly unknown outside Canada and bordering areas, but its mix of doughnuts, coffee, and food could help it become a blue-collar alternative to higher-end coffee chains. That of course means competing with Dunkin' Donuts-- something it struggled to do in initial forays in New England south of Maine, but opportunity exists in the rest of the country.

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Daniel Kline has no position in any stocks mentioned. He knows to check the window next time he buys a car. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.